Payday Lenders: 'We're Not Bottom Feeders'

By Tina Dupuy

"How do you spell your name?" the woman asked. Was she Googling me? I tried not to panic. Playing up the jetlag, I gave her one of my business cards. Then I realized she was typing my name to put on my badge. She handed me my lanyard.

I was in!

Why are reporters barred from attending the Community Financial Services Association of America (CFSA) annual conference? The organization says full disclosure and transparency are best practices — but no media are allowed at its annual shindig.

This is a $46 billion dollar industry based on subprime customers. What are their get-togethers like? Not long ago I went to the La Costa Resort and Spa in Carlsbad to investigate. I told people I was here for "research" and that I was taking the temperature of the industry.

There has to be a good reason they're afraid of journalists.

The first day of panels I was scanning the breakfast buffet for members of congress before I crammed into a banquet hall. The crowd inside was part Jos. A. Bank two-for-one sale and part Herbalife educational seminar. All business.

Missouri Congressman Blaine Luetkemeyer congratulated the CFSA on its 15th anniversary by video. (Luetkemeyer's name appeared nowhere on the schedule, printed materials or the app. ) After complaining about "federal bureaucrats" and grumbling about who should be fired at the Department of Justice for Operation Choke Point, he closed with, "We want to work with you and make sure it's not hurting you."

The industry spent more than $13 million on lobbying and campaign contributions in the 2014 election cycle. In Washington, payday lenders are treated like a mistress you say you'll leave your wife for — but won't take out in public.

"Some call us bottom feeders, loan sharks and parasites, but we're a lawful business!" This message from various participants was less informative than it was an exercise in cognitive dissonance. Group therapy for those cursed with a conscience.

Why are payday lenders hated? Mainly because they've managed to squeeze $46 billion annually out of underrepresented and marginalized human beings. In the modern world we live on credit, but still are repulsed by predatory lending.

Payday lenders offer Faustian bargains to the desperate. You'll pay some "legitimate businessman" $400 for that $100 repair to your mid-'90s Neon. With rollover options some borrowers have paid up to 1000 percent APR. We tend to dislike people who see abject poverty and think, "How can I make money off that?" Because it's not so much a cycle of debt for the lowest on the economic scale — it's debt by a thousand cuts.

Only Congress or state legislatures can implement APR caps for loans. These lenders, who call themselves "advancers" to skirt state laws, have repeatedly cried out, "We can't stay in business with a cap of 30 percent APR!" It's literally saying that if they don't rip people off, they will go out of business. Their business is ripping people off. They shriek "Persecution!" at any regulation, but tout their regulation-granted legal status as a badge of legitimacy.

What's clear is that payday lenders want us to think of them as victims of a Big Meanie Government. Operation Choke Point was a directive by the DOJ to banks to be wary of reputational risk from tobacco, ammunition and payday lenders. An attendee demanded that someone at the DOJ should lose their jobs: "Heads will roll!"

Privately over happy hour whiskies, one financial manager admitted to me that Operation Choke Point cleared out a lot of bad actors and improved the industry. And this is a realm of shady practices. The Hydra Group got busted in 2014 doing cash-grab scams, according to one complaint. Hydra wired money into customers' accounts and then extracted fees. "There are bad apples in every industry," was the cocktail pivot to the next subject.

If the goal of CFSA is to legitimize payday lenders, then the DOJ apparently did a better job at weeding out the particularly egregious players. This admission was such a stunning reversal of everything said at the podium, I had to ask around and see if the financial manager wasn't just a contrarian outlier. Yes, a lawyer for the industry confirmed, Operation Choke Point killed lenders that needed killing.

The other talking point is that there's a genuine need for the lenders' product. It's estimated that there are 68 million Americans who don't have a bank account. Payday lenders see themselves as the only thing standing between the desperate and the real criminals who'd take advantage of them.

"If you have a better idea, then show us! I'll be the first to embrace it!" said CFSA president Dennis Shaul, in one of his many speeches at the conference.

Elizabeth Warren has floated the idea of the post office again offering short-term loans at a cap of 30 percent APR. In California, Governor Jerry Brown just signed a bill allowing nonprofits to make small no-interest loans up to $2,500 without onerous regulation. There are alternatives to bilking poor people. Like not bilking poor people.

My takeaway from breaking bread and bon mots with payday lenders for 72 hours is that this industry thrives in a bubble of poor-shaming (aka, "personal responsibility") bromides and legal maneuvering. This has to be a fun place to be a lawyer, great to be a lender and depressing to be a customer.